IVANHOE MINES LTD IDOP Technical Report March 2012pratclif.com/oyu.tolgoi/financial.pdf · IVANHOE...

IVANHOE MINES LTD IDOP Technical Report March 2012

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21 CAPITAL AND OPERATING COSTS

21.1 IDOP Reserve Case Cost Summary

OT LLC prepared the operating and capital costs presented in IDOP. The operating costs are based on the designs of the mines and plant in IDOP. The cost estimates in IDOP were generally based on actual costs expended to date and on contracts and supplier quotations for the construction and operation of the project and were applied to the design quantities, equipment schedules, labour numbers and consumption rates and productivity assumptions. Labour costs reduce over time as it is assumed that expatriate labour is reduced and more roles are carried out by Mongolian nationals. The methodology for the cost estimation is described in the following section.

In order to provide an analysis of IDOP for the IDOP Technical Report, costs to December 2011 were treated as sunk and escalation was applied to the operating and capital costs base (excluding Phase 1) prepared for the IDOP study to produce the cash flow. The operating and capital costs in IDOP were increased by 8.1% for the IDOP Reserve Case. The capital costs for the Project are detailed in Table 21.2 and Table 21.1 provides a breakdown of operating costs and revenue in the IDOP Reserve Case.

Table 21.1 IDOP Reserve Case Operating Costs and Revenues US$M $/t Ore Milled

Total

IDOP Reserve Case

First 5 Years

First 10 Years

IDOP Reserve Case

Revenue Gross Sales Revenue 87,105 65.71 78.41 62.33

Less: Realization Costs Concentrate Transport 960 0.45 0.72 0.69 Treatment and Refining 4,453 2.39 3.55 3.19 Government Royalty 4,355 3.29 3.92 3.12 Total Realization Costs 9,768 6.12 8.19 6.99 Net Sales Revenue 77,337 59.58 70.22 55.34

Less: Site Operating Costs

Mining (all sources) 7,531 6.69 6.46 5.39 Processing 6,311 6.90 5.20 4.52 Tailings 922 0.92 0.79 0.66 G&A 6,738 8.39 6.25 4.82 Entrée JV Fees 539 0.02 0.02 0.39 Government Fees and Charges 2,495 2.84 2.22 1.79

Management Fees 1,789 3.11 1.90 1.28 Total Site Operating Costs 26,325 28.86 22.82 18.84 Operating Margin 51,012 30.72 47.40 36.50



Table 21.2 Total Project Capital Cost– IDOP Reserve Case

US$M Phase 1 100 ktpd

Expansion 160 ktpd

Sustaining Total

Mining Southern Oyu 484 490 974 Hugo South 0 0 0 0 Hugo North Lift 1 944 2,828 830 4,601 Hugo North Lift 2 0 0 0 0 Heruga 0 0 0 0 Subtotal 1,428 2,828 1,319 5,575

Processing and Infrastructure Concentrator 1,310 645 121 2,076 Infrastructure 1,404 129 1,534 Power Station 17 1,156 96 1,270 Tailings Storage Facility (TSF) 37 50 86 Subtotal 2,768 1,801 397 4,966

Indirects & EPCM Construction Indirects/Site Services 433 433 Project Management 434 434 Subtotal 868 868

Construction & Operations Construction Owner’s Team 305 305 Operations Owner’s Team 828 828 Subtotal 1,133 1,133

Mongolian Government Payments Mongolian Customs Duties 127 43 170 Mongolian VAT 360 133 493 Subtotal 487 176 663 Total Development Program 6,197 5,115 1,892 13,204 Notes:Phase 1 capital includes only direct project costs within the scope of Phase 1 as approved by the OT Technical Committee and update at 31 December 2011. They do not include non-cash shareholder interest, management fees, foreign exchange gains or losses, tax pre-payments, T Bill purchases or exploration phase expenditure. All GOM payments for the Phase 1 capital program have been included within the direct or indirect project cost area to which they relate.



21.2 Capital Costs

Capital costs have been allocated into the following categories: � Mining

- Open Pit - Underground

� Processing and Infrastructure - Indirects & EPCM

- Construction & Operations � Mongolian Government Payments

Customs and VAT costs in the Phase 1 capital estimates have been included in direct costs and shown separately for the remainder.

21.2.1.1 Open Pit Capital Costs

The open pit mine capital costs include the following: � Heavy mobile equipment (HME)

� Minor equipment � Explosives and diesel

� Mining software and systems � Spare shovel bucket

� Spare FEL bucket � Truck tray re-liner package

� Dewatering � Pit dispatch system

� Global positioning system for mine surveying

� Blasting contractor set-up � Maintenance system

� Pit power distribution � Training simulator

HME capital costs are based on supplier quotations and allowances for the number of equipment units required. The HME prices include start up spares, delivery to Oyu Tolgoi site, assembly, and commissioning. Prices for small support equipment, such as light vehicles, personal carriers, cranes, and the mine fuel truck, include start up spares, and on site delivery costs, and exclude assembly and commissioning costs. As a result of the update on HME productivity assumptions, additional equipment units were allowed for in IDOP. Final contract prices were agreed for the equipment and the equipment purchase price assumptions were updated, showing a decrease in drilling



and loading and a slight increase in hauling price compared to the previous analysis completed in early 2010.

21.2.1.2 Underground Capital Cost

Underground capital costs are divided into the following two categories: � Capital Development – includes all preproduction and production build-up

development and infrastructure required to initiate production and undercut the cave until the end of 2015.

� Sustaining Capital – includes work required for long-term development, facilities, or systems to sustain full production operations, but not direct production costs.

Capital development began in Year -5 and are planned to end in Year 2 (pre-production). Production starts in Year 2 and production build-up continues through Year 8. The first year of full production is Year 8, and full production continues through Year 16. Production ramps down from Year 17 through Year 21. All planned development following first production, but not included in major life-of-mine infrastructure, is categorized as sustaining development. Many of the tasks falling into the capital development and sustaining capital categories are identical. Task classification into either of the two capital categories is purely a matter of timing relative to production status.

The design of the underground incorporates 4 shafts and 5 raises to ventilate the mine. The intended method of construction for the 5 ventilation raises is by raise boring. This has proven difficult and has suffered delays, the primary reason for schedule slippage has been due to poor ground conditions. Completion of the ventilation raises is on the critical path to production from the underground mine as the raises are required to meet the ventilation requirements for development and provide alternative means of egress should Shaft 1 be unavailable. In order to mitigate and minimise risk to the project production, OT LLC is investigating alternative means of establishing the vertical development required to complete the ventilation infrastructure.

Work to determine the impact of this issue is being carried out. Initial analysis by OT LLC suggests that the underground production could be delayed by around twelve months and that each month’s delay could have an NPV value of $50 M. These investigations are planned to be incorporated into DIDOP and will allow OT LLC to quantify potential costs and changes required to meet the Project schedule.

In addition possible scope changes have been indicated including:

� Additional development and excavation expenditures � The addition of a shaft No 5

� An additional crew underground � Increased operating cost due to design changes



The components of capital development and sustaining capital are further defined below.

� Drifting and Excavating � Rock handling – truck haulage, conveyor drift, and crosscut development and

associated rock handling excavation.

� Ramps and accesses – access ramp, level access, and level development.

� Fixed facilities drifting – infrastructure excavation (i.e. material staging area, shops, lunchrooms, etc).

� Extraction and undercut drifts – perimeter drift, panel drift, drawpoint drift, and drawbell drift development.

� Ventilation drifts and accesses – dedicated intake and exhaust airways (lateral only).

� Mass excavations – large excavations required for facilities and installations.

� Shafts and Raises

- Intake and exhaust raise development. - Ore pass and waste pass development.

- Service and production shaft development. - Ventilation shaft development.

� Equipment and Infrastructure - Truck haulage infrastructure – supply and installation of truck haulage-related

fixed equipment and infrastructure.

- Ore flow infrastructure – supply and installation of conveyors grizzlies, ore chutes, crushers, etc.

- Drawpoint construction – drawpoint related excavation and construction activities, including construction of drawpoints, slot raise excavation, drawbell and undercut drilling and blasting, and undercut swell mucking.

- Mobile equipment – production LHDs, production drills, haulage trucks, development jumbos, bolters, trucks, utility vehicles, etc. This includes the initial supply, materials for major rebuilds, and replacement of mobile units.

- Fixed facilities infrastructure – ventilation facilities, pumping systems, shops, offices, lunchrooms, storage areas, fuel and lube areas, explosives magazine.

21.2.1.3 Project Capital Costs

The Phase 1 construction of the Phase 1 plant and infrastructure is substantially complete.



21.2.2 Scope of Work

The scope of work for the Phase 2 PEP relates primarily to the underground mine, on which development has commenced. The Phase 2 execution plan will be developed during the underground mine Feasibility Study and will include lessons learned and advancements in ongoing project activities from Phase 1.

The scope of work for Phase 2 includes the following elements: � Completing infrastructure not finished under Phase 1.

� Conducting work related to the power plant. � Carrying out regional development work.

� Expanding the concentrator to a capacity of 150 kt/d.

21.3 Operating Costs

� Mining

- Open Pit - Underground

� Processing

� Tailings

� G&A � Other

- Government Fees and Charges - Management Fees

21.4 Open Pit Operating Costs

The detailed monthly and LOM production plans have been developed to optimize open pit mine production and to determine the necessary equipment hours.

Benchmark productivity assumptions were used to determine the unit costs for the various mining activities. Labour costs are based on the salary and wages structure provided by OT LLC Human Resources. Ore control costs are based on estimates for assaying and required consumables.

The main operating cost driver is haulage, followed by loading and labour. Additional haulage costs result from dividing the TSF into two cells. It is currently assumed that Cell 1 will be constructed with NAF waste material as soon as open pit mining starts. The East waste dump behaves as a temporary storage for NAF waste. The production plan uses this dump as final destination. Therefore, additional haul profiles have been added to the cycle times to account for the travel times between the East NAF dump (TSF stockpile) and the cell construction dikes as mining progresses.



As the pits deepen, haulage costs increase with greater haulage distance. Labour costs reduce over time as it is assumed that expatriate labour is reduced and more roles are carried out by Mongolian nationals. The unit cost in the last production year is higher because mining operation is shut down before the end of the year.

21.4.1.1 Underground Operating Costs

Operating costs include direct and indirect costs associated with the production of ore. Production is defined as pulling ore from drawpoints and delivering it to the main overland conveyor and all activity directly supporting this process. Operating costs include the following items: � Production

- Production mucking – production haulage by LHDs from drawpoint to extraction level ore passes.

- Truck haulage and ore flow – truck operation, chute maintenance, apron feeder maintenance, crushing and conveying system operation, and conveyor spill cleanup.

- Secondary breaking – fixed and semi-mobile rock breakers, rock breaker operators, breaking of drawpoint oversize, and relieving low and medium hang-ups.

� Ground Repair

- Drawpoint repair. - Sill concrete repair.

- Ore pass repair. � Indirects – costs not directly allocated to production.

21.4.1.2 Process Operating Costs

Concentrator operating costs were developed using the template used by AMEC for IDP10. Data for all areas were updated to the latest available as of November 2010. All prices were in Q4 2010 US dollar terms, except where noted. Process plant operating costs have been developed for the main ore sources on an annual basis. The cost areas making up the process operating costs are: � Workforce

� Reagents and Consumables � Maintenance Materials

� Concentrator Administration Costs � Miscellaneous and Contractor Costs

Labour has been modelled on an annual basis from Year 1 to Year 7 (the first full year after expansion). Administration and miscellaneous costs have been considered 100% fixed in both phases, given that the increase in manpower is projected to be much lower than the increase in tonnage in Phase 2, as is normal in expansion of a mature plant.



Power, maintenance consumables and reagents, grinding media and filter cloths have been treated as fully variable on an annual basis for the IDOP Reserve Case.

Concentrator operating costs were calculated based on testwork data, calculation of consumables, and unit rates developed from various sources, including:

� IDP10

� updated quotations for supply of goods and services from AMEC and Rio Tinto Procurement

� OT LLC’s and AMEC’s database and experience from similar projects

� labour rates and numbers provided by OT LLC

OT LLC has created a detailed labour estimate on a period-by-period basis in order to apply labour costs over the life of mine. This includes changes in personnel numbers as production levels change, and maintenance of at least 90% Mongolian national hire for all of OT LLC in advance of the IA mandated schedule.

21.4.1.3 General and Administration Operating Costs

The G&A costs cover all costs not directly associated with mining and processing. The areas included were: � Executive Management

� Human Resources and Training

� Business Readiness and Integration � Health, Safety and Security

� Regional Development & Communications � Government Relations

� Commercial

The following is a list of cost elements included in the cost estimate of each area: � Employee Related Costs

- FIFO Travel - FIFO Accommodation

- Relocation Cost

- Recruitment Cost - R&R Travel - Housing Cost

- In-country Costs

� External Services � Inward freight



� Consultants

� Legal Fees

� General Consumables � Mobile Equipment

- Site Transport - UB transport

� Safety, First Aid & Medical Supplies � Utilities

� Fuel and Energy � Contractors

� Operating Leases and Rent � Telecommunications

� Office Accommodation Costs

� Advertising, Promotions and Donations � Subscriptions & Memberships

� Rates, Taxes & Licences � Travel Expenses

� Asset Purchases

21.4.1.4 Other Operating Costs

Other costs that are treated as operating costs in the IDOP Reserve Case are: � Government Fees and Charges

� Management Fees � Entrée JV fees

� Ex BHP 2% NSR based payment



22 ECONOMIC ANALYSIS

22.1.1 Key Assumptions

IDOP is an update of the Reserve Case previously presented in IDP10. The results of the IDOP Reserve Case show an after tax NPV8 of US$11.4 B. The case exhibits an after tax IRR of around 31% and a payback period of around 6 years. An initial capital cost of US$6.0 B will be expended before production can commence.

The key economic assumptions for the analyses are shown in Table 22.1. Metal prices are assumed to fall from current prices to the long term average over five years.

Table 22.1 Economic Assumptions

Parameter Financial Analysis Assumptions Discount Rate 8.00% per annnum

Copper Price $2.90 average

($2.85 long-term) per lb

Gold Price $1,272 average

($1,200 long-term) per oz

Silver Price $17.41 average

($16.60 long-term) per oz

Treatment Charges $70.00 per dmt concentrate Copper Refining Charge $0.070 per lb Gold Refining Charge $5.00 per oz

22.1.2 Investment Agreement and Taxation Assumptions

Both the process of negotiation and the final agreement of the IA presented an opportunity to confirm how the laws of Mongolia should be interpreted in their application to the Project and provided for some specific terms to apply to the Oyu Tolgoi Project. For OT LLC, the agreement has provided the confidence in the stability of the terms the Project will operate under and reliably assess its intended investment in the Project. The agreement itself is effective for an initial term of 30 years with an available extension of a further 20 years.

In accordance with the requirements outlined in the 2006 Minerals Law of Mongolia, upon execution of the IA and the fulfillment of all conditions precedent, the GOM has become a 34% shareholder in OT LLC through the immediate issue of OT LLC’s common shares to a shareholding company owned by the GOM. Upon a successful renewal of the IA after the initial 30 year term, the GOM also has the option to increase its shareholding to 50%, under terms to be agreed with Ivanhoe Mines at the time.

A number of conditions precedent were set down in October 2009 and were required to be met before the IA terms came into effect. These were met and confirmed by the GOM in March 2010, triggering the issue of the GOM’s equity share in the Project and bringing the IA into full effect.



Despite its role as an equity owner, the GOM will not be required to contribute to the initial capital cost of the Project. Ivanhoe Mines, as the parent company, retains the right to fund the Project by way of a combination of debt, redeemable preference shares and common shares provided the debt to equity ratios fall within the 3:1 ratio required by Mongolian law.

In the case of shareholder debt, loans (including existing shareholder loans at the time of the agreement) initially attracted an interest rate of 9.9% (real) per annum with corresponding adjustments to be made to the outstanding balance to reflect increases in US CPI during each period. The coupon rate applicable to redeemable preference shares was to be 9.9% (real) and carry the same escalation terms. All principal and interest outstanding on shareholder debt, outstanding coupon payments on redeemable preference shares and the face value of those redeemable preference shares must be paid in full prior to any dividends on common shares being paid.

In 2011 an Amended Shareholders Agreement was concluded which reduced the applicable rate from 9.9% to LIBOR plus 6.5%. In addition, an in principle agreement was reached to convert the balance of preference shares into ordinary shares. Both adjustments were to take place based on the 31 January 2011 balances, although the preference share conversion had not occurred by 31 December 2011.

Under the authority of the Shareholders Agreement, Ivanhoe has the right to act as or appoint a Management Team to oversee the construction and operation of Oyu Tolgoi. The management team is compensated with a Management Services Payment equal to 3% of total operating and capital costs prior to commencement of operations and 6% of operating and capital costs during operations. This payment is included in the economic analysis as a project expense and is confirmed as tax deductible in the IA.

OT LLC is required to achieve commencement of production within 7 years of the effective date of the IA.

Under the terms of the IA, a range of key taxes has been identified as stabilized for the term of the agreement at the rates and base currently applied. The following taxes comprise the majority of taxes and fees payable to the GOM under Mongolian law and are shown with their stabilized rates: � Corporate income tax 25%

� Royalties 5% (gross sales value) � Value added tax 10%

� Customs duties 5%

In accordance with the Excess Profits Tax invalidating law, as from 1 January 2011, the taxpayer will not be subject to the excess profits tax or any similar windfall tax.

OT LLC is also only subject to those taxes currently listed in the General Taxation Law and not taxes introduced at any future date. These taxes are collectively noted as non-discriminatory taxes and as such cannot be imposed on OT LLC in any manner other than that applied to all taxpayers. OT LLC may also apply to take advantage of



any future law or treaty that comes into force and which would apply any rates lower than those specified in the IA.

The GOM recently enacted amendments to the legislation governing the carry forward of income tax losses. The loss carry forward period has been extended to 8 years and if sufficient, can be applied to offset 100% of taxable income. This contrasts with the previous law in which losses carried forward for 2 years and were subject to a 50% limit.

The agreement also provides OT LLC with the benefit of a 10% tax credit for all capital investment made during the construction period. The amount of this credit can be carried forward and credited in the three subsequent profitable tax years. It is noted in the agreement that if VAT payments, which are currently non-refundable, become refundable in the future, the availability of the investment tax credit will cease from that point. In that event, past earned investment tax credits will still be applied.

22.1.3 Operating Assumptions

Although it has a requirement to make its self discovered water resources available to be used for household purposes, it is confirmed in the agreement that OT LLC holds the sole rights to use these water resources for the Project. The contract for the utilization of water with the GOM water authority is in effect for 30 years with subsequent 20 year periods of renewal.

The supply of power has been recognized as being critical to the execution of the Oyu Tolgoi Project in the IA. OT LLC has been given the right to import power initially but must secure power from sources within Mongolia from the fourth year of operation.

OT LLC also has the right to construct roads for the transport of its product and airport facilities to suit the Project’s needs. The GOM has committed to providing OT LLC with non-discriminatory access to any railway constructed between Mongolia and China if such a railway is constructed.

22.1.4 Project Results

A summary of the IDOP Reserve Case project financial results is shown in Table 22.2 and the mining production statistics are shown in Table 22.3.

The estimates of cash flows of the Project have been prepared on a real basis based at 1 January 2012 and discounted back to a current day NPV at a rate of 8%. Metal prices used for the analysis are copper $2.90/lb ($2.85/lb long-term), gold $1,272/oz ($1,200/oz long-term) and silver $17.41/oz ($16.60/oz long-term).



Table 22.2 IDOP Reserve Case Financial Results

Before Taxation After Taxation Net Present Value (US$M) Undiscounted 41,080 33,105 5.0% 20,435 16,773 6.0% 17,893 14,730 7.0% 15,693 12,953 8.0% 13,783 11,403 9.0% 12,119 10,046 10.0% 10,665 8,856 Internal Rate of Return – 32% 31% Project Payback Period (Years) – 6.14 6.14

Table 22.3 IDOP Reserve Case Mining Production Statistics

IDOP Reserve Case 5 Year Average 10 Year

Average IDOP

Average Quantity Ore Treated Mt 1,398 34.0 44.5 51.8 Copper Feed Grade % 0.94 0.69 1.09 – Gold Feed Grade g/t 0.35 0.58 0.49 – Copper Recoveries % 87% 85% 85% – Gold Recoveries % 79% 79% 79% – Copper Concentrate Mt (dry) 37.62 0.69 1.29 1.39 Copper Concentrate Grade % 30% 30% 33% –

Contained Metal in Concentrate - Copper Mt 11.47 0.20 0.43 0.43 - Copper Mlb 25.28 0.45 0.94 0.94 - Gold Moz 12.35 0.50 0.57 0.46 - Silver Moz 77.28 1.54 2.88 2.86

IDOP Reserve Case Processing and concentrate and metal production are summarized in Figure 22.1 and Figure 22.2 respectively. There is a minor difference between the inventory used for the financial model and the Mineral Reserve. The difference is approximately 4 Mt out of 1.4 bt. This difference is due to differences in reporting from the mine designs (used for the Mineral Reserve), reporting in the production scheduling prepared by OT LLC, stockpile balances and rounding errors. The difference is not significant and if removed would not result in a material difference in the economic analysis.



Figure 22.1 IDOP Reserve Case Processing

Figure 22.2 IDOP Reserve Case Concentrate and Metal Production

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Mine site cash costs are shown in Table 22.4. Those costs relating to the direct operating costs of the mine site, namely:

� Mining � Concentration

� Tailings

� General and administrative (G&A) costs � Government fees and charges (excluding corporate taxation)

� Management fees

In addition, realization costs are shown which depict the actual realizable value of Payable Copper produced after accounting for the transport treatment and royalties payable on these sales.

Table 22.4 IDOP Unit Operating Costs by Copper Production

$/lb Payable Copper

IDOP Reserve Case First 5 Years First 10 Years

Mine Site Cash Cost 1.01 2.17 1.05 TC/RC, Royalties and Transport Cash Cost .40 0.58 0.47 Total Cash Costs Before Gold Credits 1.48 2.75 1.52 Gold Credits (0.62) (1.73) (0.82) Silver Credits (0.05) (0.08) (0.05) Total Cash Costs After Credits 0.81 0.95 0.65

Notes: Payments made directly to Ivanhoe from the Project, principally the management fee as specified in the terms of the IA are included in the Mine Site Cash Cost per pound of payable copper. These payments due to Ivanhoe average around 0.10 $/lb.

The revenues and operating costs have been presented in Table 22.5, along with the net sales revenue value attributable to each key period of operation.



Table 22.5 IDOP Reserve Case Operating Costs and Revenues

US$M $/t Ore Milled

Total IDOP Reserve Case

First 5 Years

First 10

Years IDOP Reserve Case

Revenue Gross Sales Revenue 87,105 65.71 78.41 62.33

Less: Realization Costs Concentrate Transport 960 0.45 0.72 0.69 Treatment and Refining 4,453 2.39 3.55 3.19 Government Royalty 4,355 3.29 3.92 3.12 Total Realization Costs 9,768 6.12 8.19 6.99 Net Sales Revenue 77,337 59.58 70.22 55.34

Less: Site Operating Costs Mining (all sources) 7,531 6.69 6.46 5.39 Processing 6,311 6.90 5.20 4.52 Tailings 922 0.92 0.79 0.66 G&A 6,738 8.39 6.25 4.82 Entrée JV Fees 539 0.02 0.02 0.39 Government Fees and Charges 2,495 2.84 2.22 1.79 Management Fees 1,789 3.11 1.90 1.28 Total Site Operating Costs 26,325 28.86 22.82 18.84 Operating Margin 51,012 30.72 47.40 36.50

The Phase 1 direct capital investment program since project inception is depicted in Table 22.6 as the capital cost required prior to reaching commercial production at the end of 2012 (pre-production). The total cash cost estimated to be expended at the end of 2012 is estimated at $US6.0 B which includes $1.0 B invested in underground development.

The Total Project direct capital costs required from 1 January 2012 are shown in Table 22.7, divided between the investment required to commence production at 100 ktpd and complete Shaft No 2 (Phase 1), the concentrator expansion to 160 ktpd, power station and completion of the underground mine to 54 ktpd (Phase 2), and the sustaining capital to support ongoing operations.

The Phase 1 capital shown in Table 22.6 and Table 22.7 include only direct project costs within the scope of Phase 1 as approved by the OT Technical Committee and update at 31 December 2011. They do not include non-cash shareholder interest, management fees, foreign exchange gains or losses, tax pre-payments, T Bill purchases or exploration phase expenditure. All GOM payments for the Phase 1 capital program have been included within the direct or indirect project cost area to which they relate.

The changes in financial results for a range of copper and gold prices are shown in Table 22.8. Cumulative cash flow for the IDOP Reserve Case is depicted in Figure 22.3 and a complete cash flow is provided in Table 22.9.



Figure 22.3 IDOP Reserve Case Cumulative Cash Flow

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Table 22.6 Pre-Production Capital Cost

Phase 1 Phase 2 Total

US$M 2000 to 2011 Costs Remaining

Mining Southern Oyu 308 201 – 509 Hugo South – – – – Hugo North Lift 1 548 299 184 1,032 Hugo North Lift 2 – – – – Heruga – – – – Subtotal 855 501 184 1,541

Processing and Infrastructure Concentrator 950 260 – 1,210 Infrastructure 945 240 – 1,186 Power Station 17 – 17 Tailings Storage Facility (TSF) 11 27 – 38 Subtotal 1,924 528 – 2,452

Indirects & EPCM Construction Indirects/Site Services 430 73 – 503 Project Management 332 134 – 466 Subtotal 762 207 – 969

Construction & Operations Construction Owner’s Team 137 120 – 256 Operations Owner’s Team 287 486 – 773 Subtotal 424 605 – 1,029

Mongolian Government Payments Mongolian Customs Duties – – 5 5 Mongolian VAT – – 14 14 Subtotal – – 19 19 Total Development Program 3,966 1,841 204 6,010 Notes: Phase 1 capital includes only direct project costs within the scope of Phase 1 as approved by the OT Technical Committee and update at 31 December 2011. They do not include non-cash shareholder interest, management fees, foreign exchange gains or losses, tax pre-payments, T Bill purchases or exploration phase expenditure. All GOM payments for the Phase 1 capital program have been included within the direct or indirect project cost area to which they relate.



Table 22.7 Total Project Capital Cost– IDOP Reserve Case

US$M Phase 1 100 ktpd

Expansion 160 ktpd

Sustaining Total

Mining Southern Oyu 484 – 490 974 Hugo South 0 0 0 0 Hugo North Lift 1 944 2,828 830 4,601 Hugo North Lift 2 0 0 0 0 Heruga 0 0 0 0 Subtotal 1,428 2,828 1,319 5,575

Processing and Infrastructure Concentrator 1,310 645 121 2,076 Infrastructure 1,404 – 129 1,534 Power Station 17 1,156 96 1,270 Tailings Storage Facility (TSF) 37 – 50 86 Subtotal 2,768 1,801 397 4,966

Indirects & EPCM Construction Indirects/Site Services 433 – – 433 Project Management 434 – – 434 Subtotal 868 – – 868

Construction & Operations Construction Owner’s Team 305 – – 305 Operations Owner’s Team 828 – – 828 Subtotal 1,133 – – 1,133

Mongolian Government Payments Mongolian Customs Duties – 127 43 170 Mongolian VAT – 360 133 493 Subtotal – 487 176 663 Total Development Program 6,197 5,115 1,892 13,204 Notes:Phase 1 capital includes only direct project costs within the scope of Phase 1 as approved by the OT Technical Committee and update at 31 December 2011. They do not include non-cash shareholder interest, management fees, foreign exchange gains or losses, tax pre-payments, T Bill purchases or exploration phase expenditure. All GOM payments for the Phase 1 capital program have been included within the direct or indirect project cost area to which they relate.



Table 22.8 After Tax Metal Price Sensitivity – IDOP Reserve Case

After Tax

Values Gold ($/oz)

Copper ($/lb) 800 1,000 1,200 1,500 1,750 2,000 2,500 3,000

Project Net Present Value at 8% ($M) 2.00 4,998 5,563 6,169 7,085 7,779 8,441 9,750 11,053 2.50 8,266 8,791 9,310 10,103 10,765 11,418 12,719 14,031 2.85 10,350 10,875 11,403 12,188 12,840 13,496 14,808 16,114 3.00 11,246 11,769 12,293 13,079 13,736 14,392 15,702 17,004 3.50 14,219 14,748 15,277 16,065 16,716 17,367 18,668 19,977 4.00 17,206 17,729 18,250 19,031 19,682 20,338 21,650 22,959 4.50 20,175 20,699 21,224 22,011 22,667 23,322 24,627 25,932 5.00 23,159 23,684 24,207 24,990 25,643 26,296 27,599 28,903

Project Internal Rate of Return (IRR%) After Tax 2.00 21% 22% 23% 25% 26% 27% 29% 31% 2.50 26% 27% 28% 29% 30% 31% 33% 35% 2.85 29% 30% 31% 32% 33% 34% 36% 37% 3.00 30% 31% 32% 33% 34% 35% 37% 38% 3.50 34% 35% 35% 36% 37% 38% 40% 41% 4.00 37% 38% 39% 39% 40% 41% 42% 44% 4.50 40% 41% 41% 42% 43% 44% 45% 46% 5.00 43% 43% 44% 45% 45% 46% 47% 48%

Project Payback (Years)After Tax 2.00 7.48 7.31 7.16 6.95 6.74 6.55 6.25 6.00 2.50 6.76 6.61 6.48 6.31 6.18 6.06 5.79 5.53 2.85 6.35 6.25 6.15 6.02 5.88 5.75 5.51 5.31 3.00 6.21 6.12 6.04 5.88 5.75 5.63 5.41 5.23 3.50 5.81 5.72 5.63 5.51 5.41 5.32 5.16 5.03 4.00 5.48 5.41 5.34 5.25 5.18 5.11 4.98 4.75 4.50 5.25 5.19 5.14 5.07 5.01 4.92 4.72 4.55 5.00 5.08 5.03 4.98 4.86 4.77 4.69 4.53 4.39

Total Cash Costs (after Credits) – Life of Project 2.00 0.90 0.82 0.74 0.63 0.53 0.43 0.24 0.04 2.50 0.94 0.86 0.78 0.66 0.57 0.47 0.28 0.08 2.85 0.96 0.88 0.81 0.69 0.59 0.50 0.30 0.11 3.00 0.97 0.90 0.82 0.70 0.60 0.51 0.31 0.12 3.50 1.01 0.93 0.86 0.74 0.64 0.54 0.35 0.16 4.00 1.05 0.97 0.89 0.78 0.68 0.58 0.39 0.19 4.50 1.09 1.01 0.93 0.81 0.72 0.62 0.43 0.23 5.00 1.12 1.05 0.97 0.85 0.75 0.66 0.46 0.27



Table 22.9 IDOP Reserve Case Cash Flow

US$M Year Total

Cash Flow Statement -1 1 2 3 4 5 6 to 10 11 to 20 21 to Life of Mine

Gross Revenue 386 2,913 1,766 1,438 2,795 2,255 23,728 40,192 11,633 87,105 Realization Costs 36 238 156 145 256 245 2,604 4,744 1,344 9,768 Net Sales Revenue 350 2,675 1,610 1,293 2,539 2,009 21,124 35,448 10,289 77,337

Site Operating Costs Mining 73 174 158 168 324 313 1,737 3,396 1,188 7,531 Processing 59 260 250 252 251 161 1,140 2,353 1,585 6,311 Tailings 0 37 30 21 25 43 193 380 192 922 G&A 221 341 276 257 291 261 1,353 2,397 1,341 6,738 Other 0 0 0 1 1 1 4 531 0 539 Total Site Operating Costs 353 812 714 699 891 780 4,427 9,058 4,307 22,040 Operating Surplus / (Deficit) (3) 1,863 896 594 1,648 1,230 16,696 26,390 5,982 55,296 Indirect Costs (inc Depreciation) 12 224 195 224 271 207 933 1,835 983 4,884 Net Profit Before Income Tax (15) 1,638 701 371 1,377 1,023 15,763 24,555 4,999 50,412 Income Tax 0 0 0 0 0 0 804 5,744 1,428 7,975 Net Profit After Income Tax (15) 1,638 701 371 1,377 1,023 14,959 18,811 3,571 42,437 Capital Expenditure 2,674 968 653 1,234 1,511 610 866 1,123 207 9,845 Other Cash Adjustments (302) 135 (237) (128) 26 (65) 179 (304) 182 (514) Net Cash Flow After Tax (2,387) 535 286 (735) (160) 478 13,914 17,993 3,182 33,105

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IVANHOE MINES LTD IDOP Technical Report March 2012pratclif.com/oyu.tolgoi/financial.pdf · IVANHOE...

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